Factoring transactions may not attract stamp duty in the coming days, giving a boost to such businesses in the country. This follows an amendment to exempt ‘assignment of receivables' from stamp duty, moved by the Centre on Wednesday in the Factoring Bill.
Factoring is a financial transaction where a business sells its accounts receivable to a third party called a “factor”, which finances the receivables and handles the administration and collection of debt.
This was one among the several amendments moved by Mr Namo Narain Meena, Minister of State for Finance, to the Factoring Bill in the Lok Sabha. The lower house later passed this Bill — the Regulation of Factor (Assignment of Receivables) Bill 2011. The proposed law is expected to particularly help address the liquidity problems faced by micro and small enterprises, although the proposed legislation applies to all enterprises.
Mr Meena rejected Opposition demands to cap the discount or commission earned by factors from transactions. He pointed out that the Reserve Bank of India had already moved away from an administered interest rate regime and any move to administratively determine the “discount” rates would not be in line with the existing policy.
“The market will decide the discount rate or commission. We cannot interfere. It is a contract between two parties,” Mr Meena said. At the same time, he noted that the RBI could give directions to the factoring businesses, if required.
